The volume of regulatory requirements, codes, and guidance for pension schemes seems to increase exponentially. As a result, equality, diversity and inclusion (EDI) can feel like just another a tick-box exercise, or even something to be ignored altogether in favour of more traditional pension scheme concerns.
However, the Pensions Regulator (TPR) has placed a renewed focus on improving EDI through its detailed guidance for pension scheme trustees and separate guidance for employers. The guidance, published in March 2023, highlights the benefits of EDI in improving governance and member outcomes, and offers practical solutions for driving change. Trustees and employers should ignore it at their peril.
So, what are the key takeaways?
What is EDI?
The first thing to understand is that the concepts of equality, diversity, and inclusion are subtly different, but interlinked.
- Equality: Equality means that everyone should have the same rights and opportunities. Per the Equality and Human Rights Commission: “equality is about ensuring that every individual has an equal opportunity to make the most of their lives and talents".
- Diversity: Diversity refers to the practice of including people from a wide range of backgrounds, inclusive of different genders and sexual orientations. TPR have adopted the definition of diversity used by the Pensions and Lifetime Savings Association which includes broader diversity markers, such as socio-economic background.
- Inclusion: Inclusion refers to providing access to opportunities and resources for all. Inclusion is not only the practice of involving everyone, but creating an environment where everyone feels comfortable and able to participate.
Why is EDI important?
Having an equal, diverse, and inclusive pension scheme trustee board allows new thinking, wider discussion, and more effective decision making, all of which are ultimately beneficial for pension scheme members.
While the importance of increasing diversity on boards is widely recognised, it’s sometimes forgotten that if people do not feel equal or included then they are unlikely to share their diverse point of view with the group, and the purpose is defeated. All three aspects of EDI are of equal and significant importance, and all three aspects need to be addressed.
What practical steps should trustees take?
TPR sets out practical examples of ways EDI can be implemented and promoted within a trustee board. These are helpful starting points for boards who may be daunted by the enormity of tackling EDI or who don’t have a clear understanding of what is meant by diversity and inclusion. These include:
- Assessment. Improving EDI “starts with an assessment of your governing body’s diversity of characteristics, life experiences, expertise and skills”. TPR suggests the use of a skills matrix to assist with this. The guidance is not focused solely on traditional markers of diversity such as gender, race, or age (although these are important), but takes a broader view that includes factors like educational background and work experience. It’s also worth considering whether the trustee board reflects the characteristics of the scheme membership.
- Training. EDI is always evolving and so regular training is important. This training can be provided internally, perhaps in conjunction with the employer, or trustees may look to their professional advisers to provide training sessions.
- EDI policy. TPR recommends the development and maintenance of an EDI policy. An EDI policy can provide comfort that there is an expectation of fair treatment and could pre-emptively provide solutions for any problems that may arise.
- Board meetings. Having diversity of thought within a trustee board brings different views and unique mindsets. Promoting an inclusive culture at board meetings allows the different views and experiences of each person to be heard. All trustees should be supported and encouraged to participate fully, with communications and meeting papers provided in accessible formats. EDI progress could be included as a standing agenda item and regular feedback could be sought.
- Annual review. TPR recommends that scheme-specific EDI goals and objectives are agreed at the start of the year and then reviewed at the end of the year to assess progress. TPR provides some suggestions of how this review might take place, for example, with an anonymised survey.
- The role of the chair. Throughout the guidance, TPR emphasises the key role of the chair. They will set the tone for discussions surrounding inclusivity, “embedding it in the culture of the governing body and ensuring that any EDI policies are followed”.
What about trustee appointments?
For a typical trustee board, one third of trustees are nominated by the members and two thirds are appointed by the employer. This means that there must be a joint effort between the trustees and the employer to improve diversity.
It’s important to be aware of the potential barriers that a scheme can face when seeking to appoint a diverse trustee board. Some barriers can include:
- employers in a sector with a non-diverse workforce;
- limited time or resources; and
- not attracting interest from a diverse group of candidates for roles.
If gaps in diversity have been identified that the trustees and employer are struggling to fill, TPR recommends some practical solutions, such as:
- Appointing professional pension trustees (ensuring that any professional trustee firm appointed has strong EDI credentials).
- Fixed-term appointments, to ensure healthy turnover while capturing knowledge and expertise.
- Seeking MNT candidates from a wider pool of candidates. Historically, trustees and employers have been reluctant to include deferred members, or even non-members, due to concerns regarding confidentiality or conflicts of interest. However, in practice these concerns can often be managed.
- Making reasonable adjustments to the selection process where applicable. For example, allowing remote interviews or providing braille documents in advance.
EDI is not an issue that can be solved in a day and TPR acknowledges that the approach to achieving EDI will need to be tailored to each scheme. However, there is no scheme too large or too small to get started, and even minor changes can have a big impact over time.
The full guidance can be found on the Pensions Regulator’s website.
For tailored advice, please contact a member of our pensions team.
This article was co-authored by Trainee Erin Connor.